Over the past 10 years when the go-go markets of real estate were flying high and lots of people were jumping into the real property investment pool, not too many people worried about the consequences of losses. It was an easy game where everyone was making what they thought was easy money – who cared if the property didn’t cash-flow for a few years, you’d just hold onto it for 2-3 years and then flip it for a much higher appreciated value. Or, if you’d owned the property longer than since 2000 you could pull out equity and utilize it for more investment purchases, buying expensive personal toys like boats, flat-screen TV’s, and more. Well, in mid-2007 those days came to an end.
What we’ve been seeing since then are a lot of investment properties (1-4 units, small multi-family, small and large commercial) coming on market that are in distressed condition, meaning, the owners are in default or they’ve lost so much money over time paying out to subsidize the monthly losses of negative cash-flow that the individual(s) is in their own financial distress having burned through their other assets to maintain this one. In many cases the properties are coming back on market at prices below what the seller purchased them for so usually there is a short sale involved. In these cases, if there is forgiven debt then there are typically tax consequences involved. Some folks who are familiar with what are called tax deferred exchanges may wonder if perhaps using one of these programs might help avert the tax consequence of an investment short sale.
Read this link from OREXCO 1031 Exchange to get the info on whether or not foreclosures, deed-in-lieu, and/or short sales qualify.
